Here's What Warren Buffett Thinks About Renewable Energy

"Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1." 
--Warren Buffett

Warren Buffett is famous for both his legendary investing acumen, and his simple, straightforward investing advice. For years, alternative energy has been viewed as non-competitive with traditional energy production from coal and other fossil fuels, making them money-losers for most investors.

Buffett's own Berkshire Hathaway  (NYSE: BRK-B  ) subsidiary MidAmerican Energy is heavily investing in alternative energy sources, including both wind and solar. And considering that MidAmerican produces more than $1.2 billion in annual "ammo" for Buffett's "elephant gun," the story on renewables is clearly changing. 

Should investors follow the Oracle into "green energy" to make more greenbacks? Let's take a look.

Wind energy central to MidAmerican

Source: Steve Wilson via Wikipedia

MidAmerican has been investing in wind energy for a decade, and is easily the largest producer of wind energy in North America; wind actually accounts for more than 30% of the company's total energy generation capacity. Current projects will move the total to almost 40%. 

MidAmerican has relied on both General Electric  (NYSE: GE  ) and Vestas  (NASDAQOTH: VWDRY  ) for wind turbines for different projects. A large project in California, which deployed more than 300 megawatts of power generating capacity, featured 100 Vestas wind turbines. GE's turbines, on the other hand, are the most commonly used in MidAmerican's fleet. 

GE's wind business was a bright spot in 2012, but has been soft in 2013, as the company told us to expect in the 2012 annual report. It can be a cyclical business due to the scale of many utility-sized wind projects. However, $5.9 billion in orders for the Power and Water segment, per the Q3 earnings release, point to a solid start to next year. 

Vestas, on the other hand, doesn't have the benefit of being a diversified industrial like GE, and the soft 2013 and cyclical nature of the wind business has made for tough going. Vestas has been losing money for the past two years, with net losses over the past four quarters more than $1.2 billion. As a result, management is working to focus the company, recently announcing a partnership with Mitsubishi Heavy Industries to develop offshore wind technologies. While Vestas is contributing much of the technical expertise and 300 employees, Mitsubishi is contributing as much as 300 million Euros to fund the joint venture. 

Additionally, Vestas recently sold a large part of its manufacturing capacity -- taking more than 1,000 employees off the payroll in the process -- in an effort to smooth the impact "lumpiness" in its business. The company will now rely more heavily on contractors to manufacture its products. Even if it does increase direct manufacturing costs, this step will remove massive fixed overhead costs, and help the company be much more nimble. 

It's more than just wind

Source: Nick Schweitzer via Wikipedia

MidAmerican is also working with SunPower  (NASDAQ: SPWR  ) to build a massive, 3,200 acre solar project in southern California that is expected to produce 579 megawatts of power -- the largest of its kind in the world -- when it is completed in 2015. SunPower isn't just limited to North America, either.

With its partnership with Total  (NYSE: TOT  ) , the French utility and energy company (and majority shareholder in SunPower), the company was recently awarded the contract for an 86 megawatt solar system in South Africa, enough power, according to the release, to support "the electricity consumption of approximately 45,000 South Africans." After having a challenging past couple of years, SunPower, largely through Total's significant investment, has turned the corner as the solar market has strongly rebounded. This has been made possibly by both aggressive efforts to expand and grow and investment in R&D to continue developing industry-leading efficiency-rated solar panels while also driving the cost per watt down to competitive levels. 

The best number for SunPower right now is manufacturing utilization. The company has been running at nearly full capacity for the past year, and was at 100% utilization in the third quarter. While this is great on the bottom line, it leaves little room for growth. With this in mind, the company is adding to its manufacturing capacity, increasing it by 25% next year.

Final thoughts
Wind and solar are still tough businesses, but renewables are gaining more and more market share.  This growth has helped the companies involved when figuring out how to be profitable while competing with fossil fuels on a cost basis. SunPower, even after a strong performance over the past year, has tremendous growth in front of it. Vestas still has a lot of work to do, but if management can make the changes needed to address the impact of the cyclicality of its business, it could make for a strong investment. For now, it's worth watching, but seeing improvement on the bottom line first is probably worth waiting for.

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Read/Post Comments (14) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 27, 2013, at 12:55 PM, sagebrush52 wrote:

    Well when this Crooked country sues them for millions for unavoidable bird strikes, then yeah a money loosing deal.

  • Report this Comment On November 27, 2013, at 1:08 PM, Birdman1524 wrote:

    Renewable energy may or may not be a good investment, but please incorporate more simple math in America's schools. With population growth, the industrial growth in many poorer nations hydrocarbons are the only source of energy that can keep up, to think otherwise is to ignore fact; (a favorite of the liberals). Some forms of renewable energy are certainly worth pursuing but only if they are cost effective. Oh, and when President Obama during one of campaigns said, "we can't drill our way out of this," he lied to the world, I spent my whole life in the oil fields and if given the green light, America's oil industry would have us energy independent in about 4 years.

  • Report this Comment On November 27, 2013, at 1:53 PM, Tigerhaze wrote:

    The story completely neglects the fact that financial viability of commercial alternative energy source projects relies on government subsidy/tax breaks (e.g. renewable enegy credits). If you put that into the equation, you would see that the situation is a little more teneuous for these companies and that government changes to those subsidies and tax breaks would likely destroy many of these companies financially.

  • Report this Comment On November 27, 2013, at 2:08 PM, TMFVelvetHammer wrote:

    Tigerhaze,

    Your comment ignores the fact that traditional oil coal and gas companies also get significant tax breaks, so it's not as simple as it sounds on the surface.

  • Report this Comment On November 27, 2013, at 2:29 PM, mapsguy wrote:

    Even if we can, theoretically, become energy independent in 5 years, or whatever, you can't get past the fact that fossil fuels are dirty fuels. Ultimately the answer is solar and increased efficiency of all loads, including distribution networks. with their 7% loss. If we replaced roofing materials with solar shingles/panels, the amount we would need to distribute would shrink radically and even given the same 7%, that amount of electricity loss would be much less.

  • Report this Comment On November 27, 2013, at 3:45 PM, nahag wrote:

    Why is TOT not a stock advisor recommendation?

  • Report this Comment On November 27, 2013, at 5:06 PM, Charos wrote:

    I have a big solar/hydro idea for Mr Buffett. He may even need help from the government for this. Any one know how to get in touch with him?

  • Report this Comment On November 27, 2013, at 5:25 PM, coloneltom1 wrote:

    The answer to green world energy crisis in right here, right under our noses, but our clever scientists and politicians have failed to see it. I am not an educated man but I've figured it out. Forget ugly wind and solar generators that kill birds and only work when the sun is shining or the wind is blowing.Take old technology that has worked for us thousands of years and add new technology to it and Bingo we have lots of electricity 24 hours a day 365 days a year for hundreds years to come with very little maintenance and absolutely no carbon footprint or damage to our environment and wildlife.The answer is waterwheels, giant waterwheels made of carbon fiber fed by water through hidden pipes from a higher elevation.Unlike wind and solar farms that take up huge tracts of unusable land, the land around the waterwheel will be usable because the mere size of these giant wheels will become a tourist attraction needing new hotels, restaurants and shops, creating lots of new jobs for the local people. Its a win- win situation for everyone. Waterwheels are cheap to build, easy to maintain, create jobs, do not interfere with environment and,don't kill birds fish or wildlife.

  • Report this Comment On November 27, 2013, at 5:52 PM, 1969wvcoalminer wrote:

    GET RID OF THE EPA AND ALL THE ENVIROMENTAL IDIOTS INCLUDING AL THE I LOST THE ELECTION AND I'M STILL PISSED GORE, AND LET THE COAL COMPANIES MINE AND OUR ENERGY PROBLEMS ARE SOLVED. OBAMA THE TERRORIST SHOULD HAVE NEVER TRYED TO KILL THE MINING INDUSTRY, BEFORE HE HAD AN AFFORDABLE REPLACEMENT IT. THE EPA AND OBAMA SHOULD BE PUT UNDER THE UNITED STATES FOR RUNNING THIS COUNTRY IN THE GROUND FOR GOOD. WE ARE COAL MINERS AND WE MAKE GOOD MONEY, BUT OBAMA WANTS US TO WORK AT MCDONALDS.

  • Report this Comment On November 27, 2013, at 7:22 PM, Rodney7777 wrote:

    Maybe Mr Buffet has done the math. According to Ray Kurzweil, inventor, futurist and author, The percent of the worlds output of solar powered electricity right now sits at .075%. That may not sound like much, but Kurzweil's charts show that solar electric output has been doubling every 2 years for a long time. A little math says that 96% of the worlds electricity will come from solar by 2027. Clean, quiet, abundant, local, and no moving parts. Kurzweil can't be brushed off. His charts also predicted the world wide web as well. Like the internet, solar will come out of nowhere to be our main source of power. Best part is, long before 2027, nuclear and coal plants will be shut down. Also the end of oil drilling and refineries.

  • Report this Comment On November 27, 2013, at 7:43 PM, toomuchgas wrote:

    What happened to hydro power? Many dams have been taken out in recent years. Hydro is the most efficient form of peaking power. Wind and sun are only intermittent.

  • Report this Comment On November 27, 2013, at 8:28 PM, 2smartforlibs wrote:

    Lets see if even the low information can answer your question. first off Warrens buddy has been giving your tax money to any stupid green energy company that comes down the pipe. (Solyndra,123 energy, Fisker motors). Second off its free money and as long as your buddy sits in the White House the money will keep coming. Do you need a crystal ball to know tis all wine and roses with a liberal writing the checks

  • Report this Comment On November 28, 2013, at 11:14 PM, Chishiki wrote:

    Nuclear is the best form of renewable energy that can produce high amounts of power at low cost. Using a molten salt reactor, we could get rid of all the nuclear waste we have built up. Then swap to thorium which we will never run out of.

  • Report this Comment On December 02, 2013, at 1:21 PM, TMFVelvetHammer wrote:

    >>Nuclear is the best form of renewable energy that can produce high amounts of power at low cost.<<

    Nuclear is not renewable energy...

    ...Unless you're counting in, say a few hundred million years?

    In which case, *we* will then be the oil that our ancestors are using. What should they use in the interim?

    Oh, right: thorium.

    Okay, so I kid a little. I've read a decent amount about thorium, and I'm not convinced that it's the answer -- outside some nefarious world plot by the energy powers to keep thorium out of the mix, there must be some real science reasons why it's not in use.

    I don't know the answer, but my money is that there's a science reason.

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